Tuesday, July 28, 2009

Mr. Bernanke deserves to be reappointed. Both the conventional and unconventional decisions made by this scholar of the Great Depression prevented the Great Recession of 2008-2009 from turning into the Great Depression 2.0.

Mr. Bernanke understands that in the Great Depression, the collapse of the money supply and the lack of monetary stimulus during contractions worsened the country’s economic free fall. This lesson has paid off. Mr. Bernanke’s decision to keep interest rates low and encourage lending has, for now, averted the L-shaped near depression that seemed highly likely after the financial collapse last fall.

To keep up with these changes that affect our citizens and our planet, we need to update our official ties with Beijing. During their first meeting in April, President Barack Obama and President Hu Jintao announced a new dialogue as part of the administration’s efforts to build a positive, cooperative and comprehensive relationship with Beijing. So this week we will meet together in Washington with two of the highest-ranking officials in the Chinese government, Vice Premier Wang Qishan and State Councilor Dai Bingguo, to develop a new framework for U.S.-China relations. Many of our cabinet colleagues will join us in this “Strategic and Economic Dialogue,” along with an equally large number of the most senior leaders of the Chinese government. Why are we doing this with China, and what does it mean for Americans?

Simply put, few global problems can be solved by the U.S. or China alone. And few can be solved without the U.S. and China together. The strength of the global economy, the health of the global environment, the stability of fragile states and the solution to nonproliferation challenges turn in large measure on cooperation between the U.S. and China. While our two-day dialogue will break new ground in combining discussions of both economic and foreign policies, we will be building on the efforts of the past seven U.S. administrations and on the existing tapestry of government-to-government exchanges and cooperation in several dozen different areas.

The Economist reports on KIPP Academy, a group of charter schools that were founded with a simple motto: "Work Hard. Be Nice." 90% of KIPP students graduate from college compared with the typical 7% college graduation rate for low income families (which make up the majority of students at KIPP). Not bad:

KIPP (Knowledge Is Power Programme) started in 1994 with a simple philosophy, encapsulated in its main motto, “Work hard. Be nice.” It stresses personal responsibility and hard work (even the youngest students can expect a couple of hours of homework a night, and teachers must be available on their mobile phones to help with it) and tells its pupils that “there are no short cuts.”

Tuesday, July 21, 2009

The prospects for health care reform seem to be dimming. If I were a progressive I would be wondering right now whether Medicare was a tactical mistake. The passage of Medicare meant that most old people get government-provided health care coverage. Yet the way to get things done in this country, politically, is to get old people behind them.

Maybe, how about the prescription drug bill? That Republican led disaster is an example of why governments shouldn't mess with health care. Is it giving them too much credit to say that this was the plan all along?

"There's no such thing as work-life balance," Mr. Welch told the Society for Human Resource Management's annual conference in New Orleans on June 28. "There are work-life choices, and you make them, and they have consequences."

Mr. Welch said those who take time off for family could be passed over for promotions if "you're not there in the clutch."

Conor's response:

Imagine that three people, all about 50 years old, are competing to be named CEO of a large company like General Electric -- one that pays a premium to compensate its top executive on the theory that singular talent at the top, drawn by necessity from a small pool of applicants, vastly increases corporate worth. Does it make sense that this decision would rest heavily on whether or not one of the applicants took a year off in her late twenties to care for her child?

No it doesn't make sense, and that is why it doesn't happen. All Mr. Welch was saying that reaching the top of a large company like GE is a cut-throat, career long competition. If significant time is missed, it is difficult to make up. He isn't talking about if a woman takes maternity leave a few times to have children.

Housing usually leads the economy both into and out of recessions (this was true for the Great Depression too). However this time, with the huge overhang of excess inventory and high levels of distressed sales, it seems unlikely that residential investment will pick up significantly any time soon.

And that leaves Personal Consumption Expenditures (PCE), and as households increase their savings rate to repair their balance sheets and work down their debt, it seems unlikely that PCE will increase significantly any time soon. Maybe there will be a pickup in auto sales from the current depressed levels, but in general a strong increase in PCE seems unlikely. So even if the economy bottoms in the 2nd half of 2009, any recovery will probably be very sluggish.

I have yet to see a good analysis presenting what will be the growth engines for the "quick" recovery that many are now predicting. Until then, don't buy the hype, this will be a long, slow process.

Tuesday, July 14, 2009

It’s interesting to see a major university endowment get behind the idea of farm investing in a fairly significant way:

George Washington University’s investment office, which manages the university’s $1 billion endowment fund, will lift farm investments to 10 percent of its portfolio, said Rodney Lake, an analyst at the university.

The Saudi programme is an example of a powerful but contentious trend sweeping the poor world: countries that export capital but import food are outsourcing farm production to countries that need capital but have land to spare. Instead of buying food on world markets, governments and politically influential companies buy or lease farmland abroad, grow the crops there and ship them back.

Supporters of such deals argue they provide new seeds, techniques and money for agriculture, the basis of poor countries’ economies, which has suffered from disastrous underinvestment for decades. Opponents call the projects “land grabs”, claim the farms will be insulated from host countries and argue that poor farmers will be pushed off land they have farmed for generations.

One of the United States' many competitive advantages internationally is the fact that we are blessed with an abundance of water and farmland, enough to feed our entire population and then some. As China and India demand more and more food, the value of these resources internationally will only increase.

2. A Giant Artificial Stomach That Eats SeaweedStep One: Grow lots of kelp near the surface of the ocean. Step Two: Harvest it and “digest” it in a giant plastic “stomach.” The giant green mass gives off lots of gas — the CO2 could be siphoned off and put in some dark place and the methane could be used for powering humanity’s myriad doohickeys and gadgets. So it’s a twofer, removing carbon from the atmosphere and creating an energy source.

9. Huge Solar Farms in the SaharaA relatively small piece of the Sahara could theoretically provide electricity for the entire planet if it were covered in solar thermal mirrors. Plus think of all those jobs to build a solar plant the size of Britain. Thenew transmission grid would be quite a project as well

I'm not sure that any of these are remotely feasible, but interesting nevertheless.

1. Cutbacks in employment (and, I would add, hours worked) are sharp relative to the cutbacks in output.

In addition, I would point out that:

2. The stock of automobiles is aging, because hardly any new cars have been bought for the past year.

3. Household formation is falling, because people cannot afford to form new households.

4. The rate of homebuilding is way below the long-term trend.

All of these factors will turn around once economic growth picks up. Firms will find themselves needing to add workers in order to meet demand. People will have pent-up demand to form households and get new cars. Homebuilding will actually start to contribute positively to growth.

In a research note, Carson says job losses in prior downturns have been roughly proportional to the decline in gross domestic product. But in the current recession, the proportion of jobs lost is running about a third greater than the drop in real GDP.

While Reddy's data point is encouraging, Kling doesn't mention what will be driving economic growth going forward? (see bold text)

Mark Thoma posted excerpts from a fascinating interview with a former CIGNA executive who very candidly discusses health care reform and the industry's current lobbying efforts. This is a must watch/read and I highly recommend forwarding this along to anyone who may be wavering in their support for health care reform. Key quote:

WENDELL POTTER: That we shouldn't fear government involvement in our health care system. That there is an appropriate role for government, and it's been proven in the countries that were in that movie.

You know, we have more people who are uninsured in this country than the entire population of Canada. And that if you include the people who are underinsured, more people than in the United Kingdom. We have huge numbers of people who are also just a lay-off away from joining the ranks of the uninsured, or being purged by their insurance company, and winding up there.

And another thing is that the advocates of reform or the opponents of reform are those who are saying that we need to be careful ... because we don't want the government to take away your choice of a health plan. It's more likely that your employer and your insurer is going to switch you from a plan that you're in now to one that you don't want. You might be in the plan you like now.

But chances are, pretty soon, you're going to be enrolled in one of these high deductible plans in which you're going to find that much more of the cost is being shifted to you than you ever imagined.

Thursday, July 9, 2009

This article is a great read, it makes you question how we could adjust our current approach in Afghanistan and Iraq, and maybe save some of the billions we are currently spending to force a square peg into a round hole:

At minimum, Indonesia is an example of a country that has done almost the complete opposite of what the US and its allies have counseled, and with now five years to examine the results, it seems the Indonesian strategy worked, and ours remains a subject of debate.

What did they do differently? Most obviously, they fought terrorism firmly and lethally, but with police and courts, not military prisons and cluster bombs. They countered the arguments of extremists with the arguments of sectarians, not with censorship or strongly-urged talking points or switching every TV in the executive palace to the equivalent of Fox News.

Rather than a source of economic weakness, this renewed quest for homeownership could underpin a sustainable recovery. As prices fall to reasonable levels, more people will qualify for reasonable loans. First, the empty houses and somewhat later, the condominiums now on the market will find buyers, in most places in a matter of a few years.

This shift will create huge opportunities for a diverse set of geographies. For urban areas like New York or Los Angeles, there will be a unique--perhaps once in a generation--chance to induce middle-class people to settle down in big-city homes or condominiums. If they become homeowners, they will be more likely to stay than move elsewhere to the suburbs or other regions when the time comes to buy a home.

Robert Shiller, an economist at Yale University and an expert on national housing markets, has estimated that "from 1890 through 1990, the return on residential real estate was just about zero after inflation." Throw in the costs of maintenance of the property and it's easy to see how renting could certainly be cheaper than owning, even if you include the tax advantages. Yet the opportunity cost of those home investments - the foregone investment opportunities elsewhere - go largely unseen ...

Not to be forgotten, a homeowner is slowly building an asset that can later be used to help support their retirement. More responsible homeowners will, at least in theory, mean there will be less people completely dependent on their government when they stop working. That is the main reason I am supportive of government policies to encourage home ownership. In a way, it is forced savings. However, the government also has a role to play through regulation to protect these homeowners from the type of bubble we are climbing our way out of now.

Right now, men with the most common form — slow-growing, early-stage prostate cancer — can choose from at least five different courses of treatment. The simplest is known as watchful waiting, which means doing nothing unless later tests show the cancer is worsening. More aggressive options include removing the prostate gland or receiving one of several forms of radiation. The latest treatment — proton radiation therapy — involves a proton accelerator that can be as big as a football field.

Some doctors swear by one treatment, others by another. But no one really knows which is best. Rigorous research has been scant. Above all, no serious study has found that the high-technology treatments do better at keeping men healthy and alive. Most die of something else before prostate cancer becomes a problem.

And why this is a problem:

But if the treatments have roughly similar benefits, they have very different prices. Watchful waiting costs just a few thousand dollars, in follow-up doctor visits and tests. Surgery to remove the prostate gland costs about $23,000. A targeted form of radiation, known as I.M.R.T., runs $50,000. Proton radiation therapy often exceeds $100,000.

And in our current fee-for-service medical system — in which doctors and hospitals are paid for how much care they provide, rather than how well they care for their patients — you can probably guess which treatments are becoming more popular: the ones that cost a lot of money.

This really is a critical piece of any health care legislation that is passed. In my opinion, universal coverage takes a back seat to getting the costs, which are crippling industry and entrepreneurship, under control.

Call me crazy, but it seems like there is a topic or two every day that almost every blog weighs in on. A dispute will start, and then instantly everyone links to and discusses that dispute. These aren't about important issues either, they are about obscure, minutia like "Adminstrative Health Care Costs" or "Urban Farming". I've probably fallen into this trap as well but I can promise I'll avoid that from now on.

Sarah Palin shocked the political world late last week by resigning her position as governor of Alaska, effective at the end of July. Some people have blamed the press and "elitists" for her downfall, while others just don't think she was cut out for the job. Either way, almost everyone agrees that barring a miracle, her political career is likely over.

I won't rehash much of what has already been written about her recent decision, instead I'd like to focus on what Mrs. Palin's rise says about America. From mayor of a small town, to governor of a small state to vice-presidential candidate of the most powerful country in the world...all in a little over 6 years. President Obama also rose to the heights of American power quite rapidly, but he at least spent 4 years on the national stage prior to his election. Sarah Palin was on the national stage for a matter of months before the country was asked to a make a decision about her, and it showed in her first national interviews.

On top of the botched interviews, the press began to dig into her background, discovering numerous mini-scandals such as Trooper-gate, Todd Palin's membership in a secessionist party, etc. It soon became apparent to Democrats and Independents that she was completely unprepared and unqualified for the position she was running for.

Despite all that, she remains extremely popular with a significant portion of the United States. As of late June, 45% of the country held a favorable view of her. Which way is that segment of the population trending? In another 8/12/16 years, will another "Palin" come along? And if that person isn't running against one of the most impressive and charismatic politicians of all time, does that person win?

I don't know the answer to that question. I do know that a democracy that can no longer tell the difference between a capable and incapable leader is a democracy that won't be around long enough to get lucky.

SPIEGEL: So in your view, peace is not the normal condition among states?

Kissinger: The preconditions for a lasting peace are much more complex than most people are aware of. It was not an historic truth but an assertion of the view of a country composed of immigrants that had turned their backs on a continent and had absorbed itself for 200 years in its domestic politics.

And:

SPIEGEL: Do you think it was helpful for Obama to deliver a speech to the Islamic world in Cairo? Or has he created a lot of illusions about what politics can deliver?

Kissinger: Obama is like a chess player who is playing simultaneous chess and has opened his game with an unusual opening. Now he's got to play his hand as he plays his various counterparts. We haven't gotten beyond the opening game move yet. I have no quarrel with the opening move.

I'd like to share the final passage from one of my favorite books, Founding Brothers by Joseph J. Ellis. I'm not sure how many people know the story of the deaths of two of the greatest Americans that ever lived, the 2nd and 3rd Presidents and longtime friends, they died on the same day, the 4th of July, exactly 50 years after the founding of the United States:

On the evening of July 3, 1826, Jefferson fell into a coma. His last discernible words, uttered to the physician and family gathered around the bedside, indicated he was hoping to time his exit in dramatic fashion: "Is it the Fourth?" It was not, but he lingered in a semiconscious condition until shortly after noon on the magic day. The same morning, Adams collapsed in his favorite reading chair. He lapsed into unconsciousness at almost the exact moment Jefferson died. The end came quickly, at about five-thirty that afternoon. He wakened for a brief moment, indicated that nothing more should be done to prolong the inevitable, then, with obvious effort, gave a final salute to his old friend with his last words: "Thomas Jefferson survives," or by another account, "Thomas Jefferson still lives." Whatever the version, he was wrong for the moment but right for the ages.

From time to time, day to day, it's easy to forget that there is something magical about this country. Between beers and hot dogs, take a moment to reflect. Happy 4th!

Wednesday, July 1, 2009

Malcolm Gladwell's review of Chris Anderson's new book "Free" set off a big blogosphere discussion the past couple days. Which I guess is what you want when you are trying to sell a book. Gladwell didn't write a very favorable review, and Anderson responded today by saying Gladwell didn't understand the book. The majority of Gladwell's review was discussing the newspaper industry and how "free" business model isn't a business model at all.

Many others weighed in with comments here, here, here, here and probably a million others. I don't want to delve into the argument about whether "free" is the future, but I do want to make a point about the newspaper business that I didn't see mentioned in the discussion.

It isn't a big secret that newspapers are struggling, but the wrong root cause is often pointed to. Newspaper readership has been rapidly declining, due in part to the internet and the greatly increased availability of information. However, the big problem is that newspapers are spending lots of money to compete in areas they have no chance at winning. No business can survive if they attempt to compete in markets in which they have inherent disadvantages.

Consider three common sections of any newspaper: Technology, Sports and Arts. The Tech section is competing with a myriad of tech-focused content providers such as CNET, Wired, IGN, etc. The Sports section is competing with ESPN, Sports Illustrated, Rivals, etc. The Arts section competes with Amazon, RottenTomatoes.com, etc. All these competitors are focused on a specific, defined market while a newspaper is trying to provide this information to an undefined readership. There is a reason why there isn't a company out there that makes PCs, cars and clothes...the newspapers are spreading themselves too thin.

If I'm in charge of a newspaper tomorrow, the first thing I would evaluate is where we are providing value. Where is the competetion the thinnest? Think op-ed pages from star pundits and investigative journalism. How many times during the Presidential campaign was the news cycle driven by these two sources? I would then form partnerships with these other content providers that specialize in certain market segments and aggregate that data to a broader population. Finally, I would re-evaluate my advertising models to leverage new technologies: a website that millions of people visit and are registered with has inherent value that needs to be capitalized on.

A decade ago, incomes per capita, even in wealthy Ontario, trailed those of every U.S. state except Mississippi. Obama’s poor economic management offers the opportunity for a stunning reversal of fortunes.

And maybe that’s the issue Prime Minister Harper should be sharpening as he prepares for his ultimate contest against Michael Ignatieff. Ignatieff’s goals as prime minister are hazy and maybe non-existent. Perhaps Harper could counter with one national goal: simple, clear and confident:

Canada will avoid reckless spending, avoid accumulating debt, hold the line on taxes and reduce the burden of government regulation, all to achieve, for the first time in Canadian history, higher average incomes on the Canadian side of the border than the American.

The basic premise is that because of the Obama administration's "staggering" spending, average incomes in Canada will surpass the US for the first time. A few commentators pointed out the absurdity of this, and really, there is no economic basis for that line of thinking considering 80% of Canadian exports go to the US. However, I'd like to take issue with a different portion of the article, the continuous harping on administration spending by right wing pundits.

Frum uses the current projections from the CBO for the Obama Health Care plan to make his point that spending is out of control. Ignoring the fact that those projections are bunk and based on an imcomplete plan, what are the other options? Something needs to be done about health care, 85% percent of the country supports fundamentally changing the health care system. Just like something needed to be done to stabalize the financial system, stimulate the economy and protect our strategic and economic interests in having a strong US based auto industry. This is what happens when political leaders are visionless for 8 years. There are a lot of problems that need fixing all at once.

Let's at least give the administration a year to implement their economic policy before we condemn it. And oh yea, Canada, the example given of an economically responsible country, they have universal health care. If they've figured it out, so can we.

Our Deal

The markets are crashing, thousands of people are losing their jobs and the government keeps funneling money into broken banks. This little blog will help explain why this is happening and how we fix it.

I'd like to preface this experiment with a contract between myself and my readers. My promise to you is that I will be civil, non-ideological, well researched and honest. In return, I only ask that you think.